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IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks
May 19, 2010
Table of Contents
Arista Records LLC, et al. v. Lime Group LLC, et al., USDC S.D. New York, May 11, 2010
 Click here for a copy of the full decision.
- In copyright infringement action against distributors of peer-to-peer file sharing program, court grants plaintiff record companies’ motion for summary judgment on their claims of inducement to infringe, common law copyright infringement, and unfair competition.
In August 2000, defendants released LimeWire, a file-sharing program that utilizes peer-to-peer technology. Plaintiff record companies sell and distribute the vast majority of all recorded music in the United States. Plaintiffs allege that they own the copyrights or exclusive rights to more than 3000 sound recordings and that LimeWire users shared and downloaded unauthorized digital copies of the recordings via LimeWire. Plaintiffs raised various federal and state law claims of secondary copyright infringement against Lime Wire LLC and personally against LimeWire’s founder Mark Gorton, including inducement to infringe, contributory copyright infringement, and vicarious copyright infringement. The parties cross-moved for summary judgment. Defendants also submitted a number of motions to exclude evidence submitted by plaintiffs in support of their motion for summary judgment.
The court first considered defendants’ motions challenging the admissibility of evidence submitted by plaintiffs. Except with respect to certain limited issues, the court found that defendants’ evidentiary objections were without merit. In rejecting defendants’ motion to exclude the reports and testimony of two expert witnesses retained by plaintiffs, the court found that Dr. Richard P. Waterman’s study of LimeWire’s unauthorized digital file was not flawed because of his collaboration with plaintiffs. The court also held that Dr. Waterman’s study analyzed appropriate categories of downloaded files and was reliable. Similarly, the court found that Dr. Ellis Horowitz, an expert who provided testimony on how LimeWire functions, did not opine on the parties’ state of mind, but rather provided information on the design and functionality of the LimeWire program. The court further concluded that Dr. Horowitz’s expert opinions were reliable to the extent that they were based upon his observation and collection of relevant information about existing infringement-reducing technologies. The court further declined to strike the declaration of Greg Bildson on the grounds that it (1) arose from improper ex parte communications and (2) contained information subject to the attorney-client privilege. Upon determining that the Bildson declaration did not arise out of improper ex parte communication between Bildson and plaintiffs’ counsel, the court, consistent with the Second Circuit mandate that the attorney-client privilege be applied narrowly, refused to issue a protective order prohibiting plaintiffs from speaking with Bildson.
Regarding plaintiffs’ summary judgment motions for secondary copyright infringement, the court explained that plaintiffs were required to, and did, establish that LimeWire users directly infringed plaintiffs’ copyrights. The evidence in the record, stated the court, clearly established that LimeWire users infringed plaintiffs’ copyrights by sharing unauthorized digital copies of the recordings through LimeWire. In reaching this conclusion, the court emphasized that (1) plaintiffs had proven that they own copyrights in the recordings and (2) both the direct and circumstantial evidence demonstrated that LimeWire users employed LimeWire to share and download the recordings without authorization.
Having found that LimeWire users directly infringed plaintiffs’ copyrights, the court then concluded that defendants, by distributing and maintaining LimeWire, intentionally induced direct infringement by LimeWire users. In concluding that defendants were liable for inducement to infringe, the court determined that defendants engaged in purposeful conduct that fostered infringement and intended to encourage infringement by distributing LimeWire. Taken together, stated the court, (1) defendants’ awareness of substantial infringement by users, (2) efforts to attract infringing users, (3) efforts to enable and assist users to commit infringement, (4) dependence on infringing use for the success of their business, and (5) failure to mitigate infringing activities all establish that defendants intended to encourage infringement.
The court denied the parties’ cross motions for summary judgment on plaintiffs’ claim for contributory infringement based on the Sony-Betamax rule. In Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984), the U.S. Supreme Court held that a defendant who distributes a product that materially contributes to copyright infringement will not be liable for contributory infringement if the product also is “widely used for legitimate, unobjectionable purposes” or is “merely . . . capable of substantial infringing use.” The court emphasized that it could not determine, based on the record, whether LimeWire is capable of substantial non-infringing uses. The court, however, held that the Sony-Betamax rule did not apply in the context of a vicarious infringement claim.
The court also held the individual founder and CEO of the corporate defendant personally liable for inducement to infringe based on evidence that he directed and benefited from many of the activities that gave rise to LimeWire LLC’s liability, and he directed and approved many aspects of LimeWire’s design and development.
The court found that plaintiffs were entitled to summary judgment on both their common law copyright infringement (with respect to pre-1972 sound recordings which are protected by New York state law and are not protected by the U.S. Copyright Act) and unfair competition claims. In doing so, the court rejected defendants’ contention that New York common law prohibits only direct infringement.
William A. Graham Co. v. Haughey, et al., USDC E.D. Pennsylvania, May 12, 2010
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- Court holds that prejudgment interest is appropriate in this case because it provides full compensation to the plaintiff and acts as a deterrent to willful copyright infringement; court calculates prejudgment interest from the date the infringement began, not the date plaintiff learned of the infringement.
Plaintiff William A. Graham Co. is an insurance brokerage firm where defendant Thomas P. Haughey was employed at one point as an insurance producer. Later Haughey went to work for defendant USI MidAtlantic, Inc., another insurance broker. In 2006, a jury found that USI and Haughey infringed Graham’s copyrights in documents that Graham’s employees used to prepare surveys, analyses and proposals for clients or prospective clients. These documents described insurance coverage concepts in lay terms and were instrumental in the sales process. The jury returned a verdict in favor of Graham and against USI and Haughey in the amounts of $16,561,230and $2,297,397, respectively.
Thereafter, the court granted the defendants’ motion for a new trial on the issue of whether the discovery rule applied in a copyright infringement action. Under the discovery rule, Graham's "cause of action for each act of infringement did not accrue until Graham discovered, or with reasonable diligence should have discovered, the injury underlying its claim." After the court granted the motion for a new trial, USI and Haughey filed a motion for partial summary judgment on the issues of statute of limitations and damages. The court granted this motion, and as a result Graham was barred from collecting damages for more than the three-year period prior tothe institution of suit. The court then ordered a new trial to decide damages for the three-year period immediately preceding the filing of the complaint.
The second jury returned a verdict in favor of Graham and against USI in the amount of $1,400,000 and against Haughey in the amount of $268,000. The court entered judgment on this verdict. Thereafter, Graham filed its second motion to amend the second judgment to include prejudgment interest and the court granted this motion. In 2009, the U.S. Court of Appeals for the Third Circuit affirmed the application of the discovery rule to determine when a claim for copyright infringement accrues. However, it reversed the district court’s orders granting the motions of USI and Haughey for a new trial and partial summary judgment. The amended judgment entered after the second trial, including the court’s award of prejudgment interest, was vacated. The Court of Appeals remanded the action for a determination of the remaining unresolved issues raised by USI and Haughey after the first trial in their motion for judgment as a matter of law, or in the alternative, for a new trial. In 2010, the court denied the motion of the defendants for a new trial on damages and reinstated the judgment originally entered on the docket on June 28, 2006.
In the court’s 2008 memorandum, it explained that an award of prejudgment interest is available under the Copyright Act at the discretion of the court, even though the Act is silent on the issue. The court also explained that the Sixth and Ninth Circuits have held that such an award is appropriate when doing so would further the statute's purposes of making copyright holders whole and removing incentives for copyright infringement.
In this decision, the court reiterated that an award of prejudgment interest is appropriate in this case because it prevents the defendants from being unjustly enriched as a result of their willful and continuing infringement of Graham’s copyrights; it provides full compensation to the plaintiff; and it acts as a deterrent to willful copyright infringement.
The court disagreed with the defendants’ assertion that prejudgment interest should not be awarded on infringer profits because such profits do not represent losses incurred by the plaintiff as a result of the infringement, noting that the defendants relied on two “dated cases” and that the law as to awards of prejudgment interest in copyright infringement cases has evolved to allow such interest where it would have been previously disallowed.
The court also held that prejudgment interest should be calculated based on when the infringement began in 1992 and not on the date when the plaintiff learned of the infringement in 2004. (The parties did not dispute that postjudgment interest should be awarded at the annual rate of 5.24%, compounded annually, and should run from the date of the judgment.) According to the court, the accrual date, which is significant for statute of limitations purposes, is not “the appropriate point for prejudgment interest to begin when the acts of infringement predate the accrual date and were not discovered and could not have reasonably been discovered before the accrual date.” The court noted that the plaintiff was being harmed before November 2004 even though it did not know it at the time. Furthermore, according to the court, the plaintiff may recover damages that occurred before the accrual date, so “we see no reason why prejudgment interest may not be recoverable coincident with those damages.”
The court rejected the defendants’ argument that awarding prejudgment interest on such large judgments amounts to a sanction. “In this case, the equities require an award of prejudgment interest for the entire infringement period. First, the defendants engaged in deliberate violations and have so stipulated. Their willful conduct continued after the lawsuit was initiated and after they were on notice of Graham's copyrights in the Works. In addition to their knowing violation of the statute, the defendants destroyed key financial documents that were subject to discovery production pursuant to an Order of this court. . . . The deliberateness of the defendants' conduct, coupled with their destruction of relevant evidence, weighs heavily in favor of the exercise of our discretion to award prejudgment interest so as to compensate plaintiff fully.”
The court granted plaintiff’s motion for prejudgment interest in the amount of $4,112,859 against USI MidAtlantic, Inc. and $570,542 against Thomas P. Haughey. The court also granted plaintiff's motion for postjudgment interest at the annual rate of 5.24% to be compounded annually.
For more information, please contact Jonathan Zavin, W. Allan Edmiston, David Grossman, Jonathan Neil Strauss, Tal Dickstein or Meg Charendoff.
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